CrossBorder Infrastructure A Toolkit Competition Basics Session on
Cross-Border Infrastructure: A Toolkit Competition Basics Session on Regulation & Accountability Max Bradford Castalia The views expressed here are those of the presenter and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent.
Cross-Border Infrastructure: A Toolkit Market Structure for Infrastructure • Natural monopoly Æ Core network infrastructure usually a natural monopoly § e. g. electricity transmission Æ Services around core infrastructure can be competitive § e. g. generation companies • Vertically integrated monopoly Æ Most infrastructure can be disaggregated into supply / distribution components Æ Introducing competition in disaggregated components can improve overall performance and reduce need for regulation
Cross-Border Infrastructure: A Toolkit Market Structure for Infrastructure • Vertically integrated monopoly - (continued) Æ ‘Unbundling’ can take place both vertically and horizontally § e. g. Electricity sector w Vertical: One transmission company w Horizontal: Many generators • Oligopoly / imperfect competition Æ Large investment requirements can limit participation in infrastructure § Entry barriers
Cross-Border Infrastructure: A Toolkit Fostering Competition in Network Industries Industry Activities that are usually not competitive (Regulated) Activities that can be competitive (Not Regulated) Electricity High-voltage transmission and local distribution Generation and retail supply to final customers Gas High-pressure transmission and local distribution Production, supply to final customers, and storage Telecommunications Local residential telephony or legacy local loop Long-distance, mobile, and value added services Railways Track, rail bed and signaling infrastructure Train operations, consolidation depots and track maintenance facilities Water Bulk water supply, local distribution and local wastewater collection Bulk water supply, long-distance transportation, purification, sewage treatment, bottled water Air services Air traffic control, airport facilities, runways Airline transport services, maintenance facilities, and commercial activities
Cross-Border Infrastructure: A Toolkit Competitive Monopoly Competitive
Cross-Border Infrastructure: A Toolkit Accountability Under Competition Accountability? Government Are consumers the focus of policy? ? Taxpayers Explicit subsidies for social purposes THE MARKET Accountability? Tariff Consumers Provider s Service Provider s s Provider s
Cross-Border Infrastructure: A Toolkit Private Sector Participation • Introduction of competition frequently involves PSP • Different accountability relationships (or just community perception) between public and private providers? • Need to reduce regulatory risk to encourage private sector investment - certainty and predictability • Scope of regulation decreases with increasing competition - market forces ensure more efficient outcomes
Cross-Border Infrastructure: A Toolkit Role of Regulation in Infrastructure Markets with Competitive Potential • Should be minimal to let competitive forces work • Main roles of industry regulator in competitive markets: Æ moderate behavior of dominant or monopoly elements Æ deal with access issues e. g. to monopoly network Æ manage explicit subsidy regimes Æ provide monitoring and evaluation regime of market • Role of competition authority versus regulator Æ Competition authority affects market structure Æ Industry regulator affects behavior of market players
Cross-Border Infrastructure: A Toolkit Introducing Competition in the Infrastructure Sector • Identify monopoly and competitive components • Can competitive pressure be introduced by unbundling horizontally? Æ Regional monopolies § Regulated or not? Æ What to do with the CORE network – what is it? Æ Role of benchmarking?
Cross-Border Infrastructure: A Toolkit Introducing Competition (continued) • Assess relative size of vertically unbundled components Æ Security of supply or service provision Æ Corporatize or privatize? § Long or short term? Æ Does the regulator have any role in competitive market? Æ Setting up clearing markets § Wholesale market? Æ Give consumers choice § Reconciliation market
Cross-Border Infrastructure: A Toolkit The Exercise • Consider a totally integrated electricity sector in 100% Government ownership. • The Government has decided to introduce as much competition in the sector as possible, for the benefit of consumers. • The Government has a rural electrification social objective. • Your task, as Minister of Electricity together with your officials, is to recommend the best way to deliver the decision. You have 12 minutes to work out the major steps you would take.
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